Oil price up after US strikes Syria

US military action against Syria on April 7 caused global oil prices to surge by around 2%.

Two US Navy ships in the Mediterranean fired 59 Tomahawk cruise missiles at a Syrian air base that was allegedly used to launch chemical weapon strikes on civilians in the Idlib province on April 4.

Brent crude futures initially rose to US$56.08 per barrel in early trading on April 7, before retreating to US$55.75, which was still up by up 1.6% on the previous day’s close. West Texas Intermediate (WTI) crude futures also increased by over 2%, hitting US$52.94 per barrel, before falling back to US$52.61. That was up by 1.8% on WTI’s closing price on April 6.

The price spikes meant that both benchmarks hit their highest levels since early March.

Syria has negligible oil production, which is currently estimated at 15,000-24,000 bpd by NewsBase Research (NBR). It was not fears of Syrian supply disruption that pushed prices higher, but rather the rise in diplomatic tensions between Washington, Moscow and Tehran.

Russia, a major global oil producer, is a close ally of Syria and reacted strongly to news of the US strikes, with Kremlin spokesman Dmitry Peskov calling them "an act of aggression against a sovereign nation". Iran, another notable crude producer, is also a key supporter of Syrian President Bashar al-Assad.

The jitters that afflicted trading in the major global crude benchmarks in the early hours of April 7 could suggest that a geopolitical premium reappears in the oil price. This is something that has been largely absent from the oil price since the downturn began in 2014, but could have been reinvigorated by the US’ first direct military action against Syrian government forces since the civil war began in 2011.

A more feasible analysis is that the price spikes were a kneejerk reaction to the missile strikes and that the benchmarks will slip back to where they were previously with retaliatory action unlikely.